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Exchange in Focus: HKEX publishes Guidance on Climate Disclosures

The Hong Kong Exchanges and Clearing Limited (HKEX) has published guidance to listed companies on climate disclosures, as well as an analysis of IPO applicants’ corporate governance and environmental, social and governance (ESG) practice disclosure in 2020/2021.

As Asia’s largest listed exchange operator and market regulator, we are committed to pioneering and promoting good governance and ESG excellence. The latest guidance on climate disclosures and our analysis on corporate governance and ESG practice disclosure among IPO applicants represent our continuous commitment in assisting our issuers and IPO applicants in their sustainability journeys, and helping them implement changes that make a real impact,” said Bonnie Y Chan, HKEX’s Head of Listing.

Guidance on Climate Disclosures

HKEX’s ESG reporting requirements have incorporated certain key recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). Meanwhile, Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group has announced plans for mandatory TCFD-aligned climate-related disclosures by 2025.

The Guidance on Climate Disclosures will help companies assess their response to risks arising from climate change. The Guide provides practical tips and step-by-step guidance to assist issuers in preparing TCFD-aligned climate change reporting.

The Exchange will review its ESG reporting framework to further align with TCFD recommendations, and will collaborate with other regulators to work on a roadmap to evaluate and potentially adopt the new standard(s) to be developed by the International Sustainability Standards Board under the International Financial Reporting Standards Foundation. HKEX will issue further guidance in due course.

Analysis of IPO applicants’ corporate governance and ESG practice disclosure in 2020/2021 - Review

HKEX has also published a review that focuses on IPO applicants’ practices on corporate governance, diversity and ESG. The Exchange evaluated the prospectuses of new applicants seeking a primary listing between July 2020 and June 2021, and further tracked the diversity progress of newly-listed issuers2 by reviewing their corporate governance reports.

Key findings and recommendations of the Review include:

  • Compliance culture – IPO applicants should instil strong corporate culture that fully adopts and prioritises compliance and governance measures of integrity, and embed the compliance culture into their everyday workflows.
  • Board diversity – Board gender diversity of new applicants has improved significantly, with the percentage of single gender board applicants dropping from 30 per cent in 2019 to 21 per cent in 2020, and down further to 12 per cent in the first half of 2021. IPO applicants are expected to not have single gender boards and should prioritise on achieving board gender diversity.
  • ESG matters – Most applicants made disclosures on environmental and social issues at IPO. Nonetheless, IPO applicants should conduct a thorough analysis and assessment to identify material ESG risks, and consider making appropriate disclosure on climate-related issues and initiatives to reduce carbon emissions, to facilitate the transition to a low-carbon economy. ESG risk management starts before listing, and it is important for IPO applicants to plan ahead to implement the necessary measures to ensure future compliance.
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